China launches crackdown on pharmaceutical sector

Beijing, July 17, 2013

China announced a nationwide crackdown on the sale of illegal medicine on Wednesday and said it would tighten industry regulation, piling pressure on a sector already reeling from a bribery scandal at British drugmaker GlaxoSmithKline.

The State Food and Drug Administration said the six-month campaign would also target illegal online drug sales and the sale of fake traditional Chinese medicine. It gave no details on possible changes to regulation.

The crackdown comes two days after Chinese police accused GlaxoSmithKline (GSK) of bribing officials and doctors to boost sales and raise the price of its medicines in China.

Police said GSK transferred up to 3 billion yuan ($489 million) to 700 travel agencies and consultancies over six years to facilitate the bribes. In response, GSK said it was deeply concerned by the developments, which it called "shameful".

The food and drug agency did not specifically mention GSK, but a spokesman for China's Commerce Ministry said authorities would not hold back punishing companies engaged in bribery.

"Whether it's a domestic or foreign-invested enterprise, once it has violated Chinese law, it will be sanctioned," Shen Danyang told a news conference.

Widespread counterfeit drugs and false advertising have been a thorn in the side of Chinese regulators for years, and the drug agency has conducted campaigns in the past to crack down.

The issue infuriates Chinese consumers, who also express anger at what they see as the high price of legitimate medicine.

A commentary in the People's Daily newspaper said China must "lift a sharp sword to pierce the improper, even illegal, costs behind rising drug prices" for which multinationals, such as GSK, were responsible.

China's planning agency, the National Development and Reform Commission (NDRC), is examining prices charged by 60 local and international drugmakers including units of GSK, Merck & Co and Astellas Pharma.

The pharmaceutical sector was a "disaster zone", said Willy Lam, adjunct professor of history at the Chinese University of Hong Kong.

"This seems to be the largest and the best orchestrated effort to target multinationals ... they seem to be blaming foreigners for problems they cannot solve themselves," said Lam, who closely follows corruption issues in China.

Underscoring the heat on foreign companies, a separate commentary in the People's Daily called for a crackdown on commercial bribery by multinational firms in general.

It accused some of using their market dominance to exploit gaps in regulatory systems in developing countries.

"A crackdown on commercial bribery by multinationals is deeply significant to safeguarding the order of the market economy and protecting an environment of fair competition," said the commentary in the mouthpiece of the ruling Communist Party.

Project bidding and tax systems for multinationals were also problematic, the commentary said, without giving details.

FOCUS ON FOREIGN FIRMS

Some experts have suggested China may be expanding an anti-corruption drive beyond government ranks and domestic companies including state-run entities, focusing now on foreign firms.

China has targeted foreign firms on multiple fronts in the past few months, although the probe into GSK is the only high-profile, publicly known investigation focused on bribery.

European food companies Nestle and Danone said early this month they would cut infant milk formula prices in China after Beijing launched an investigation into the industry.

Chinese media has been giving the GSK story plenty of attention.

On Tuesday night, state broadcaster CCTV night aired an interview with one of four detained Chinese executives from GSK.

Liang Hong, vice president and operations manager of GSK (China) Investment Co, offered details on how he funnelled money through travel agencies by arranging conferences, some of which were never held.

"To have contact with some government departments you need money that you cannot normally expense to the company," Liang said during the broadcast.

Liang said he paid bribes to officials from the NDRC as well as the Ministry of Labour and Social Security, which are among those required to get medicines approved or prices set.

It is rare for state TV to carry such interviews, although state news agency Xinhua had earlier been given access to Liang. - Reuters